September 8, 2025 • 38 mins
Chuck Zodda and Marc Fandetti discuss another big week in markets and another jobs markdown sets the stage for Fed cuts. Why the Fed should not cut rates now. Bessents Fed critique misses the big picture. What if Congress takes over some of the Fed's mandates? South Boston emerges as a hot spot for move-out day debris.
Mark as Played
Transcript
Episode Transcript
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Speaker 1 (00:01):
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(01:06):
Sata and Mark Fandetti.
Speaker 2 (01:11):
It's Chuck, Mark and Chucker with the and kicking off
the second week of September, we got a busy week
for economic data. Just when we look at it, there's
nothing as far as earnings that's particularly interesting. You do
have a couple of tech companies that are kind of
that next tier down, Oracle and Adobe both reporting this week,
(01:33):
But other than that, I don't think anyone gets particularly
excited about what we're gonna be hearing from National Beverage
after the bell today, just gonna fizzle out. See what
I did there. The ticker's fizz which is a great ticker,
I do have to say, but you're a three billion
dollar company. You don't move the market. What we do
(01:55):
have this week Tuesday, we get the non farm payrolls
annual revision. This is gonna be much hyped, but ultimately
really tells us more about what happened a year ago
than what's going on now. You can imply some things
about what's going on now, but I don't think it's
particularly pertinent data for you know, what's happening in the
economy today Wednesday. This is one of those weird months
(02:18):
where we have Producer Price Index data coming before Consumer
Price Index, and so the PPI is at at eight
thirty am on Wednesday. Thursday, at eight thirty we get
CPI and also weekly jobless claims, and then Friday we're
gonna get University of Michigan Consumer Sentiment, which I basically
go back and forth every day of my life wondering
(02:39):
whether we should even cover this series anymore, because I
think since they moved to the online only survey, it's
just gotten increasingly disconnected from what's actually going on. But
that's neither here nor there. In any case, a lot
of economic data this week. You've also got an iPhone
event tomorrow from Apple where the iPhone seventeen is expected
(03:00):
to be released, and so you know you've got some
stuff to get through this week. But ultimately I think
we'll start with a discussion of this annual revision to
the Non farm Payrolls Report. It is a basically, it's
an annual update that the Bureau of Labor Statistics does
(03:23):
in order to try to improve the quality of the data.
It's called the Quarterly Census on Unemployment in Wages, and
it pretty much looks at job growth from April of
twenty four through March of twenty five, so it covers
those four quarters and the expectations are that it will
show somewhere in the ballpark of eight hundred thousand fewer
(03:45):
jobs created during that time than it did initially. And
this is pretty much what we saw last year where
the QCUW when it came out in September of last year,
sot about eight hundred thousand fewer jobs created over the
April twenty three to March twenty four period. And Mark,
I think the question that people ask is like, why
(04:06):
is there such a big revision And the answer is
quite simple. Well, it's simple but complicated. The Bureau of
Labor Statistics, in trying to estimate where employment is in
any particular month, uses what's called a birth death model
for their establishment survey, basically how many companies are being
(04:27):
formed versus how many companies are being shut down, you know,
because they're no longer in business and pretty much at
turning points in the economy, that birth death model for
businesses gets skewed further and so they come in with,
you know, better data after being able to look at
it for a year and say, yeah, there were fewer
(04:50):
businesses that started than we think, or more businesses that
went out of business than we thought, and so as
a result, we didn't have as many jobs created as
we thought there were. That's what this is designed to do.
Speaker 3 (05:04):
Correct, Yeah, that's my understanding anyway.
Speaker 2 (05:08):
So all of this is a fancy way of saying,
you're going to see, you know, a bunch of chatter about, hey,
the US economy added you know, x thousand fewer jobs
than we originally thought. The question is what does this mean?
And for anyone looking at the economy today, the answer
is it means nothing. And I know that that sounds weird,
(05:33):
but it means nothing because ultimately we're looking at this
from the perspective of, yes, we want better data so
that when we're looking back at it, we know that,
you know, it's of higher quality than it initially was.
But if we have fewer jobs created in May of
twenty twenty four, does that change anything about what we're
(05:56):
experiencing today in the economy on a day to day basis.
Speaker 3 (06:01):
It shouldn't.
Speaker 4 (06:02):
No, markets are forward looking. Expectations are forward looking by definition.
Speaker 2 (06:06):
Now, if you do want to say here's one thing
that it could change and and not could, but probably already.
Has The FED pays attention to this stuff because they
obviously are, you know, trying to be in tune with
what's going on in the labor market. And if you
want to make a case that this could matter, it
would be okay. Could the FED extrapolate this to mean
(06:30):
that job growth is weaker today than currently estimated because
we've now had two years of significant downward revisions. Maybe,
but the counter to that, and why I continue to
think that this doesn't really matter for markets and and honestly,
before last year, I don't think anyone even knew this
existed outside of you know, a handful of people in
(06:51):
the in the industry. The FED does not look at
the number of jobs created when it is trying to
determine it's It looks at the unemployment rate, which does
not come from the Establishment survey. It comes from a
survey of households. And so this revision to the Establishment
(07:11):
survey doesn't actually impact the numbers that the FED looks at.
Speaker 4 (07:18):
Yeah, probably not a good measure of slack in the economy,
which is what the FED is interested in. The FED
tries to balance economic growth. A proxy for that is
the unemployment rate, A lower unemployment rate is all lseqal better,
or an unemployment rate that is too low could point
to an economy that is overheating. And overheating economy tends
(07:39):
to put upward pressure on prices. We call that rising inflation,
where inflation is just the average change in prices in
the economy. The unemployment rate has been historically, though displaced
lightly by the vacancy to unemployed ratio that we sometimes
that you and Mike and others sometimes talk about. The
(08:00):
unemployment rate is the traditional measure of slack in the economy.
Speaker 5 (08:03):
It's the one that FED uses.
Speaker 2 (08:05):
Now, it doesn't mean that you won't have everyone in
their grandmother looking at this and saying, oh, look at this,
like it has to mean something, and this is why
the FED should cut rates more quickly, or look how
weak this job grow. Everyone's going to want to talk
about this, But the fact is the most recent period
that this covers is, you know, not anything that is
(08:29):
relevant today. I mean, you're talking about this is going
through March of this year. You're talking about something that
the data that's being modified by this. The closest we
get to today is six months ago, right, So it's
not something where you know, you look at this and say, og,
you know, does this mean that you know the economy
(08:49):
is different today than otherwise.
Speaker 1 (08:52):
No.
Speaker 2 (08:54):
Nvidia doesn't suddenly wake up and say, hey, there were
fewer jobs created last year, so we're going to hell
fewer chips today. Chipotle doesn't suddenly wake up and say, hey,
there were eight hundred thousand fewer jobs added between April
and twenty four in March of twenty five. We gotta
lay people off. No like that. That's not how any
(09:15):
of this works. Companies that are making sales in this
environment have been making sales in this environment regardless of
what the economic data shows. This is simply the BLS
trying to hone in on greater accuracy for its data,
and it does so with an extreme delay in this case,
to try to understand the data that they're getting from
(09:39):
businesses at a better level, just because it takes a
while to actually extrapolate what's going on there.
Speaker 4 (09:45):
Yeah, I mean, at best, it underscores the uncertainty in
the initial estimates. Any statistic and we use that number
advisedly as statistic means you're estimating some value you don't
know the true figure for, and statistics are as a result,
not only accurate to within a degree of confidence, and
(10:10):
big revisions underscore the uncertainty associated with the month to
month estimates, rather than use them as political fodder.
Speaker 5 (10:18):
Which happens inevitably.
Speaker 4 (10:20):
I get that they should be used to underscore the
uncertainty in the month to month estimates. And there's uncertainty
with respect to inflation and other variables that the federal
government tries to get a handle on too. But this
is especially true of the payrolls data.
Speaker 2 (10:33):
Let's take a quick break when we return. We just
talked a little bit about, you know, some of the
you know again weakness on the job side that that's
going to be talked about. But when we come back,
we got a piece from the Financial Times. It's titled
why the Fed should not cut rates. Now we'll discuss
that when we return.
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Speaker 2 (11:58):
Peace in the Financial Times is titled why the Fed
should not cut rates now? And the case for cutting
rates is pretty straightforward. I think the labor market is
pretty stagnant at the moment, and the unemployment rate now
in the last couple months has ticked up from four
point one to four point three percent. And so if
(12:21):
you believe that when unemployment moves, it tends to move nonlinearly,
that is, it tends to accelerate upward, not move at
a constant pace, then the best thing to do is
to typically start to react sharply or strongly simply because
it takes a while for monetary policy to potentially have
(12:42):
any impact on the overall economy. What does this piece
lay out as the case for not cutting interest rates today?
Speaker 4 (12:52):
Well, Sharma, who I like in this case, makes an
argument that financial conditions, which we talk about a lot,
and there are some nice measures that aggregate the state
of capital markets the state of lending markets. They ask
loan officers, are you being more or less lenient with
(13:12):
potential borrowers and all other types of variables.
Speaker 3 (13:16):
If you bundle all.
Speaker 4 (13:18):
These together and look at them as overall financial conditions,
which the Chicago Fed does.
Speaker 5 (13:23):
You can google it.
Speaker 4 (13:23):
They have a national Financial Conditions Index and you'll see
if you do that, financial conditions are as loose as
they've been at any time this cycle since twenty twenty one.
So Sharma's main argument, as far as I can tell,
hinges on loose financial conditions and shorthand for that is
simply stocks are at an all time high, interest rates
(13:44):
are still reasonably low, nobody's having trouble getting access to capital.
Argue the way the Fed works on the well, go ahead,
let me stop there, and that says argument, I don't
want to talk.
Speaker 5 (13:56):
I don't want to go on for too much.
Speaker 3 (13:57):
It's not an attractive quality.
Speaker 4 (13:59):
So that's his argument in a nutshell, it's it's a
flawed argument though he's not looking at other.
Speaker 2 (14:05):
Talk to me about why it's flawed.
Speaker 3 (14:06):
Yeah, well, I find nobody.
Speaker 4 (14:07):
FED doesn't look for The FED does look at financial conditions,
but none of their models incorporate a variable for financial conditions.
Speaker 3 (14:14):
They look at rising.
Speaker 4 (14:17):
Grow I was gonna say rising unemployment, but the rise
of unemployment over the past several months has been modest,
And you could make an argument that it's structural. We're
shrinking the labor supply, we're making it harder because of
immigration policy, and you could say this is a good thing.
By the way, I'm not making a political argument. I'm
just making economic sort of factual.
Speaker 2 (14:34):
If I get fewer people in the workforce, it's going
to be tighter.
Speaker 4 (14:37):
We're making it harder to match workers with jobs. Sure,
friction is growing. That would increase the so called natural
rate of unemployment, which is the rate above which inflation
comes down below. It's theoretical, but you know it should exist,
and the.
Speaker 2 (14:52):
Reason why is simple. Like let's say that, as an example,
you are running a you're a subcontractor that does drywall,
just as an exact, and you need five workers a day,
and you'd show up to home depot and you'd say, okay,
you know I need five of you to come with me.
I'm paying you, guess twenty bucks an hour for the day.
Come on, let's go. If there previously were ten people
(15:13):
there and you know five would take it. Now there
are seven people there and four taken, and say well, okay,
last one, look, I'll give you twenty five bucks if
you come with me for the day. That's effectively what
we're talking example.
Speaker 4 (15:25):
That's a great example of why the natural rates, so
to speak, might be rising. Maybe the right natural rate
now is. And this is the way monetary folks that
you know, economists think about this, not necessarily the way
financial journalists do. So the way I'm framing it might
sound weird, but I'm.
Speaker 3 (15:42):
Doing it this way for a reason.
Speaker 4 (15:43):
So suppose the natural rate where what four point three
is of last week, yes, in the rate of unemployment.
Suppose it's ticked up to the estimate prior to all
this new immigration policy was like four point one four
point two.
Speaker 3 (15:55):
Suppose it's s ticked up to five.
Speaker 4 (15:56):
So anything below five will put up with pressure on
prices without helping the the real economy in a way
that we can all relate to and benefit from. So
this is the pickle that the FED is in. So
the argument Sharma makes here is I think the right one,
which is, beware we the FED might be misreading signs
of labor market weakness. They might actually be pointing to
(16:18):
structural problems which the FED can't do anything about. He
rather emphasizes financial conditions, which I get. But that's not
the way the FED thinks about the world. It's certainly not.
It's certainly not what's what's what they're attentive too.
Speaker 2 (16:31):
Right now, as I've said before, any efforts by j.
Powell to increase the labor force are strictly on his
personal time. It is not something that he can do
like it. It's not something that is part of his
efficient hobb duties.
Speaker 4 (16:47):
So right, and can we could you explain should we
explain why? Like what the FED can do and what
it can't do?
Speaker 2 (16:51):
Or you want to here, here's the example that I
love to give it. It's short and simple. Let's say
that you have an economy that has one hundred people
in it, and ninety six of them are employed, and
so you've got a four percent unemployment rate. If all
of a sudden, you have one person come into the
country and they gain a job, and you still have
(17:15):
a four percent unemployment rate, do you look at that
and say that that is meaningfully worse or better than
if one of the people with a job leaves and
now you've got ninety five people employed out of ninety nine,
which one of those. What does the FED do in
those different situations. The answer is they don't do anything
(17:35):
differently because the FED is not controlling the size of
the workforce. That's not something that they can control. And
so if the population is growing versus shrinking for that
working age population, that's not what the FED pays attention
to because they can't impact that. So that this is
(17:55):
why the FED looks at the unemployment rate is because ultimately,
if that person comes into the country and can't get
a job in the unemployment rate goes from four to five,
then they say, Okay, now there's too much slack here. Yes,
we need to cut rates because the unemployment rate went up.
On the other hand, if a person leaves the country
(18:16):
and someone else who's you know in the country gets
a job and now you've got ninety six out of
ninety nine people employed. The FED may say, hey, you
know what that might result in, you know, too much demand,
and so that could result in, you know, too much
upward pressure on prices. We've got a hike interest rates there.
Speaker 3 (18:31):
Yeah.
Speaker 4 (18:31):
The Fed can only influence demand.
Speaker 2 (18:33):
Correct, They can't influence labor supply. You know, cutting interest
rates or raising interest rates does not get more or
less fewer workers into the workforce. It doesn't. The FED
can't print workers.
Speaker 5 (18:49):
Yeah.
Speaker 4 (18:50):
Yeah, So if there's not a big demand deficiency right now,
and the real time GDP, the so called NowCast don't
suggest that there is, h is the FED doing something
that's likely to be ineffectual or worse, exacerbate an elevated
underlying inflation problem.
Speaker 2 (19:09):
So this is why, ultimately I think that you could
still have a there's a really convincing case for the
Fed should cut right now, which is the labor market
appears to be weakening, and when it usually does, it
tends to not move linearly. Counter to that is that
core inflation still running three to three and a quarter percent,
and that's a little bit hot. Let's take a quick break.
(19:31):
When we returns Wall Street Watch, Like us.
Speaker 1 (19:41):
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Breaking business news is always first right here on the
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a complete look at what's moving markets so far today
right here on the Financial Exchange Radio Network.
Speaker 6 (20:04):
All markets are a mixed territory to begin the week
as investors a way more inflation than jobs data duout
this week ahead of the FEDS meeting next week. The
size of the likely ray cut, however, is the big
question that remains on Wall Street right now. The Dow
is down by only nineteen points, so pretty much flat.
(20:25):
SMP five hundred is up a quarter of a percent
or seventeen points higher, and NASDAC up by seven tenths
of one percent, or one hundred and sixty five points higher.
Russell two thousand is off four tenths of one percent.
Ten year treasure yield down three basis points at four
point zero five three percent, and crude oil is up
(20:46):
over half a percent today, trading at sixty two dollars
and twenty one cents a barrel. Robinhood and app Lovin
are set to join the SMP five hundred on September
twenty second. That news came out on Friday of last week.
Robinherd is surging nearly fifteen percent, while app Love and
shares is also seeing a nice game today of about
(21:09):
eleven percent on that news. Meanwhile, the Wall Street Journal
reported that PNC Financial Services agreed to buy privately held
First Bank in a four point one billion dollar deal.
PNC shares or pulling back by one percent. Elsewhere, Summit
Therapeutic stock is sinking eighteen percent after the biopharmaceutical company's
(21:31):
results from a Phase three trial forwards lung cancer drug
showed fewer improvements in patients. Tesla stock seeing another modest
game today, falling news from late last week that the
ev maker's board proposed a near one trillion dollar pay
package for CEO Elon Musk. Outside of Tesla, Musk's SpaceX
(21:52):
agreed to pay seventeen billion dollars for the rights to
some of EchoStar's wireless spectrum. EchoStar shares are seventeen percent,
while AT and T Verizon and T Mobile are down
over two percent on that news, and Chewy received an
upgrade from Missouo, where the bank anticipates strong results in
(22:13):
Ray's guidance. When the pet supplies e commerce retailer reports
their quarterly results on Wednesday, Chewy shares are down just
over half a percent.
Speaker 5 (22:21):
Today.
Speaker 6 (22:22):
I'm Tucker Silva and that is Wallstree watch.
Speaker 3 (22:26):
Mark.
Speaker 2 (22:26):
I want to talk a little bit about this piece
in Bloomberg Opinion. It's titled Besson's FED critique misses the
big picture. And Beson's not alone in saying, hey, look,
the FED has, you know, created some problems with its policy.
But what specifically does Besson talk about when it comes to,
(22:47):
you know, kind of how he is calling out the FED?
And do you believe that he is accurate or inaccurate
when talking about what he sees from the FED.
Speaker 4 (22:58):
I sympathize with a lot of the critique coming from
I'll just call it the right, those who are on
the right politically, because I think I'm among them.
Speaker 3 (23:08):
The FED has been.
Speaker 4 (23:10):
The FEDS changed its policy framework over the last few years.
The twenty twenty change was a big one. It shifted
the emphasis from unemployment and inflation. It actually reversed the
order of those two prior to that. The re order
was in the reverse of what I just said prior
to that, excuse me, it shifted the emphasis in some
way subtle, in some ways meaningful in terms of the
(23:32):
mechanics of the way it conducts monetary policy to unemployment
over inflation. Besen didn't spend a lot of time on that,
but I will because I think that's the biggest chink
in the Fed's arm or over the past few years.
Too much emphasis on employment something sort of wokish like
and I hate that word, but you know it in
politically correct like inclusive employment, whatever the heck that means.
(23:54):
Giving inflation secondary status turned out to be a very
consequent error. Their timing could have been better to not
their fault, go ahead, Sorry.
Speaker 2 (24:04):
Do you think that this was largely due to the
fact that if you look at the twenty tens, oh sure, yeah, yeah,
despite all of the concern about hey, you know, there
was all this you know, money printing in this and that,
inflation never really perked up in the twenty tens. Yeah,
(24:25):
and so they just viewed it as kind of a
dead issue. Yes, And then because of the massive amount
of fiscal stimulus that was pushed into the economy in
twenty twenty and early twenty one, they found themselves behind
the eight ball, and that policy change just like happened
(24:46):
to come at the exact wrong time because the fiscal
framework completely changed from what it was previously and disrupted
the whole thing.
Speaker 4 (24:53):
Yeah, they were responding to inflation that was too low,
to expectations that were well anchored. The problem were very
different in twenty twenty than they are today. They were
good problems to have in some sense. The FED could
be reckless and not jeopardize state and not not jeopardize
the stability of inflation expectations. We have the opposite problem today.
So some of Besson's critiques I think are well founded
(25:15):
and should be particularly and I forget whether he said
it in his Wall Street Journal editorial or he has
set it in others of his ill could set it previously.
The FED needs to get back to emphasizing price stability
full stop.
Speaker 3 (25:28):
Now.
Speaker 4 (25:29):
Part of that is on Congress. They need to change
Humphrey Hawkins. They need to h They need to legislate
price stability, maybe even an inflation target.
Speaker 2 (25:37):
Part of it is you can't just say something like
that and then not explain what it means. Oh okay,
because I don't think any one listening still under.
Speaker 4 (25:45):
You and Mike talk about this a lot, the FED
having a so called dual mandate. It's actually a three
part mandate, but one of the parts is subsumed by
one of the others, so that the FED has a
two part mandate for all intents and purposes, price stability,
keep inflation low and stable, is how that's been interpreted.
Bernank operationalized that by saying it's going to be two percent.
(26:06):
Possibly a mistake, but that's the world we live in.
The other is, of course, maximum employment, which has been
read up until twenty twenty. Anyway, in the change in
the policy framework, is employment consistent.
Speaker 5 (26:18):
With price stability.
Speaker 4 (26:20):
So inflation, particularly after the experience of the nineteen eighties,
was always weighted more heavily. And I think I'm going
to charitably interpret besence critique because he's echoing critiques made
by others, guys like Rand Paul and before him his
dad Ron Paul, which I'm sympathetic with, So I'm gonna
paint them in a favorable light. FED needs to focus
on price stability, period forget about all these ancillary goals
(26:41):
FED is you talked about in the last segment. FED
can't do anything about this labor supply or the weather
or inequality. Probably some would argue with that, but I
would argue that it's dangerous once you start getting going
down that path.
Speaker 3 (26:56):
So I'm gonna interpret.
Speaker 4 (26:57):
Besson's critique as charitably as possible and say, this guy's
got a point. Congress should let May control Congress, so
they should take advantage of that Act on it. The
President should sign something that makes the FEDS do what.
Speaker 3 (27:08):
Okay, so do what?
Speaker 4 (27:09):
Specifically, revise the nineteen seventy seven to seventy eight law
that ensrying the dual mandate in legislation, change the Fed's
focus to make it solely on price stability and controlling
inflation expectations. I, for what it is worth, agree with
those who say strip out the maximum employment mandate. It's
what gets the FED into trouble. It's what got them
(27:30):
into trouble in twenty twenty twenty twenty one, they decided
to let the economy as you said in the last segment,
although you weren't referring to this period, but they appear
to be doing it again. It causes them to get
the economy to run hot because they think they can
do something about a supply problem when their tools just
don't enable them to. So I think Congress could and
just following the footsteps of Ron and Ran Paul. Here again,
this is me the ideologue, not me the analyst talking.
(27:52):
But by constraining the Fed's mandate, you prevent it from
getting into trouble and better help. I think keep inflation
expectations under control is how I interpret besense critique.
Speaker 2 (28:02):
When you look at some of the items that are
in here. The one place that I always kind of
run into problems with the criticism of the FED is
it always seems to be like, damned if you do,
damned if you don't. In that for the entire twenty
ten decade, all I heard over and over and over
(28:24):
was the FED is keeping interest rates artificially low, and
it's propping up home prices, and it's preventing Americans from
buying homes and Americans can't get anything on their savings. Correct.
Speaker 5 (28:38):
Yeah, that was a pretty common critique.
Speaker 2 (28:40):
And now all I hear is the Fed's keeping interest
rates artificially high, and because of those high interest rates,
Americans can't buy homes. Well, it can't be that the
FED is keeping rates both too low and too high,
like what's the right rate of interest? And this is
the problem that I get to with a lot of
these FED critiques is it's based on the fact that
(29:05):
maybe this maybe gets it what you're saying. Maybe the
problem isn't the FED when it comes to these things.
Maybe it's broader policy, either on a national level or
at a local level, that is preventing homeownership from being affordable. Yes, yes, yes,
And we need to move past just trying to blame
(29:26):
the FED. And this is kind of what I get
at a lot is people want to blame the FED
for what their own city council has done to home prices.
Speaker 4 (29:34):
Locally, eliminating the dual one prong of the dual mandate
to mix metaphors a little bit would achieve that it's
probably not going to happen because it's convenient for politicians
to shift blame or to assign blame. Sometimes you can't
do anything about a recession. It's the way the economy
naturally realigns in response to changes in technology and their
(29:56):
effect on productivity, and you get this frictional structural sometimes
unemployment when industry when when when industries EBB and flow
in terms of dominance. The FED can't do can do
very little about that. The federal government could cushion a blow,
but it's a way for politicians to shift blame, so
to me doing what the ECB does. By the way,
this is not some radical policy. There are plenty of
(30:17):
central banks around the world that don't have a so
called dual mandate. Allowing them to focus just on price
stability would make it easier to set and anchor inflation
expectations and maybe shift the responsibility for some of these
other things that, as we've talked about, the FED can't do,
back to the bodies that can accomplish them, like Congress.
Speaker 2 (30:39):
Let me ask you the counterpoint to that, and then
we're going to take a quick break and answer it
on the back end. Is there a convincing case that
responsibility for price stability should instead lie with Congress. Let's
take a quick break and discuss that when we return.
Speaker 1 (30:56):
Text does six one seven, three, six two one three
eight five with your comments and questions about today's show.
This is the Financial Exchange Radio Network. Find daily interviews
and full shows of the Financial Exchange on our YouTube page.
Subscribe to our page and get caught up on anything
and everything you might have missed. This is the Financial
(31:16):
Exchange Radio Network.
Speaker 2 (31:27):
In the last segment, as we're winding things down there,
Mark said, look, one of the things that Congress should
look to do is to take back control of one
side of the Fed's dual mandate and remove the unemployment
piece from the puzzle. So the FED is just targeting
price stability. And I responded with, you know, kind of
(31:48):
a smart ass response, but you know, also a smart
response because you can't smell, you can't spell smart ass
without smart Hey, what if the FED, I'm sorry, what
if Congress decided to take control over the price stability
mandate instead? And look, the obvious answer is they probably
(32:08):
can't do either of these because no one ever wants
to do any bad things when they're in Congress. It's
just not a responsible institution at this point. Yeah, if
we're being honest. But I'll make the point that, hey,
if Congress effectively said, you know what, we generally can
(32:33):
more directly influence the amount of aggregate demand in the
system that impacts you know, price stability through policies that
we pass, maybe we should be responsible and try to
you know, handle that side of the equation instead. And
the case I'll make is the inflation that we saw
(32:56):
in twenty one and twenty two does not happen without
Congress passing a bunch of fiscal Is that a fair statement.
Speaker 4 (33:05):
Some would disagree with that, but I think most think
that monetary and fiscal factors and supply shocks contributed.
Speaker 2 (33:11):
The supply shocks obviously would be there. The monetary side
wouldn't have necessarily been the problem if it weren't for
the fiscal side being so out of whack.
Speaker 4 (33:22):
Well, they accommodated the supply shocks.
Speaker 5 (33:23):
The FED didn't. By that, I mean they didn't push
against them. Look, I don't want to split hairs.
Speaker 3 (33:28):
Yeah, go ahead, I'm with you so far.
Speaker 2 (33:30):
So part of me wonders, Look, in an ideal world,
could you have Congress, you know, adjusting its policy there.
But the problem is, as I said, I don't think
Congress is a responsible institution at this point to be
able to react as needed when those things come up.
And the evidence of that is there's a reason why
the deficit is moving only in one direction in the
(33:50):
last twenty five years, and that's up.
Speaker 4 (33:52):
And there's a reason why we are where we are today.
If you read an economics textbook that was written in
the seventies or eighties, it would have touted fiscal policy.
Speaker 5 (33:57):
People all, remember this.
Speaker 4 (33:58):
You stimulate agreg get the mead, Congress passes a tax cut.
How do we get to the point where monetary policy
is the key output stabilization tool. Well, people realize that
there are so called inside and outside lags associated with
fiscal policy. Inside lag being amount of time it gets
the bill to pass, requires is required to build a pass.
Pardon me for he's talking so fast, but this is
I'm gonna get it all in here. Outside lag is
(34:18):
the amount of time it takes for whatever the fiscal
policy makers did to affect the real economy that takes
too long. Monetary policy can act on a dime and
it can stimulate the economy quickly. They could do a
helicopter drop, as Milton Friedman joked, of money into the economy.
So that's how we got to monetary policy being the
key counter cyclical, a recession mitigating tool.
Speaker 2 (34:41):
Do you think they would ever use actual helicopters.
Speaker 4 (34:46):
If the stunt, you know, worked from a pr point
of view, somebody might as it.
Speaker 2 (34:50):
Feels like we might get there eventually. Yeah, right, Like
you want to make the FED more popular? Put j
up there in a purple tide dropping dollars down.
Speaker 3 (35:00):
Yeah, there was saying this is good.
Speaker 4 (35:01):
I'm just saying like when they started with QE and
eight oh nine, an investment manager, well known one, was
giving away ties at Christmas of Bernanky in a helicopter.
It was a little hard to get the thing on
a tome. You get one, I've got like three of them.
You do Bernanke helicopter draw not ties. Yeah, I tried to.
Speaker 5 (35:18):
Sell the money bay. There wasn't much of an audience.
Speaker 2 (35:20):
You should drop those from a helicopter and see what happens.
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Speaker 2 (36:29):
Trash complaints in Boston last week quadrupled from their norm.
On an average day in twenty twenty five, Bostonians submitted
fifty six complaints about improper storage of trash to the
city's Public Works Department, But from September one to September third,
(36:51):
that jumped to more than two hundred per day. And
this is what happens every year. Because Boston's a big
college town. Lisa's run September through August, and so you
get a bunch of moving that happens on or around there.
And because it's a bunch of college students who don't
necessarily have cars. You get them basically just throwing their
junk out on the street, and people complain about, you know,
(37:12):
the volume of junk that is out there. I can
sympathize with both sides of the equation here. On one hand,
if you live in the city of Boston, you don't
want to just be walking by giant piles of furniture
and stuff. Like they talked about someone throw a cat
tower out and they were like a couple of cats
that had moved into the cat tower out on the
(37:33):
street just because they were like, Oh, this sounds you know, cozy.
So I can understand like the problem there. On the
other hand, I don't really know what you want people
to do, Like this is kind of how cities tend
to work. Your trash goes out on the sidewalk and
waits for the trash people to come through, and so
(37:56):
I don't know, do you like find a way to increase,
you know, pick up volume during that time. I don't
know where you just keep these like backup trash, you know,
garbage men on on on duty the rest of the year.
But I don't know what the answer is to this.
Wood chippers just give everybody woodchippers. Problem solved in the units.
Yes we got mulch. What a great thing. Let's take
(38:20):
a quick break when we come back. Our two in
just a bit
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(01:06):
Sata and Mark Fandetti.
Speaker 2 (01:11):
It's Chuck, Mark and Chucker with the and kicking off
the second week of September, we got a busy week
for economic data. Just when we look at it, there's
nothing as far as earnings that's particularly interesting. You do
have a couple of tech companies that are kind of
that next tier down, Oracle and Adobe both reporting this week,
(01:33):
But other than that, I don't think anyone gets particularly
excited about what we're gonna be hearing from National Beverage
after the bell today, just gonna fizzle out. See what
I did there. The ticker's fizz which is a great ticker,
I do have to say, but you're a three billion
dollar company. You don't move the market. What we do
(01:55):
have this week Tuesday, we get the non farm payrolls
annual revision. This is gonna be much hyped, but ultimately
really tells us more about what happened a year ago
than what's going on now. You can imply some things
about what's going on now, but I don't think it's
particularly pertinent data for you know, what's happening in the
economy today Wednesday. This is one of those weird months
(02:18):
where we have Producer Price Index data coming before Consumer
Price Index, and so the PPI is at at eight
thirty am on Wednesday. Thursday, at eight thirty we get
CPI and also weekly jobless claims, and then Friday we're
gonna get University of Michigan Consumer Sentiment, which I basically
go back and forth every day of my life wondering
(02:39):
whether we should even cover this series anymore, because I
think since they moved to the online only survey, it's
just gotten increasingly disconnected from what's actually going on. But
that's neither here nor there. In any case, a lot
of economic data this week. You've also got an iPhone
event tomorrow from Apple where the iPhone seventeen is expected
(03:00):
to be released, and so you know you've got some
stuff to get through this week. But ultimately I think
we'll start with a discussion of this annual revision to
the Non farm Payrolls Report. It is a basically, it's
an annual update that the Bureau of Labor Statistics does
(03:23):
in order to try to improve the quality of the data.
It's called the Quarterly Census on Unemployment in Wages, and
it pretty much looks at job growth from April of
twenty four through March of twenty five, so it covers
those four quarters and the expectations are that it will
show somewhere in the ballpark of eight hundred thousand fewer
(03:45):
jobs created during that time than it did initially. And
this is pretty much what we saw last year where
the QCUW when it came out in September of last year,
sot about eight hundred thousand fewer jobs created over the
April twenty three to March twenty four period. And Mark,
I think the question that people ask is like, why
(04:06):
is there such a big revision And the answer is
quite simple. Well, it's simple but complicated. The Bureau of
Labor Statistics, in trying to estimate where employment is in
any particular month, uses what's called a birth death model
for their establishment survey, basically how many companies are being
(04:27):
formed versus how many companies are being shut down, you know,
because they're no longer in business and pretty much at
turning points in the economy, that birth death model for
businesses gets skewed further and so they come in with,
you know, better data after being able to look at
it for a year and say, yeah, there were fewer
(04:50):
businesses that started than we think, or more businesses that
went out of business than we thought, and so as
a result, we didn't have as many jobs created as
we thought there were. That's what this is designed to do.
Speaker 3 (05:04):
Correct, Yeah, that's my understanding anyway.
Speaker 2 (05:08):
So all of this is a fancy way of saying,
you're going to see, you know, a bunch of chatter about, hey,
the US economy added you know, x thousand fewer jobs
than we originally thought. The question is what does this mean?
And for anyone looking at the economy today, the answer
is it means nothing. And I know that that sounds weird,
(05:33):
but it means nothing because ultimately we're looking at this
from the perspective of, yes, we want better data so
that when we're looking back at it, we know that,
you know, it's of higher quality than it initially was.
But if we have fewer jobs created in May of
twenty twenty four, does that change anything about what we're
(05:56):
experiencing today in the economy on a day to day basis.
Speaker 3 (06:01):
It shouldn't.
Speaker 4 (06:02):
No, markets are forward looking. Expectations are forward looking by definition.
Speaker 2 (06:06):
Now, if you do want to say here's one thing
that it could change and and not could, but probably already.
Has The FED pays attention to this stuff because they
obviously are, you know, trying to be in tune with
what's going on in the labor market. And if you
want to make a case that this could matter, it
would be okay. Could the FED extrapolate this to mean
(06:30):
that job growth is weaker today than currently estimated because
we've now had two years of significant downward revisions. Maybe,
but the counter to that, and why I continue to
think that this doesn't really matter for markets and and honestly,
before last year, I don't think anyone even knew this
existed outside of you know, a handful of people in
(06:51):
the in the industry. The FED does not look at
the number of jobs created when it is trying to
determine it's It looks at the unemployment rate, which does
not come from the Establishment survey. It comes from a
survey of households. And so this revision to the Establishment
(07:11):
survey doesn't actually impact the numbers that the FED looks at.
Speaker 4 (07:18):
Yeah, probably not a good measure of slack in the economy,
which is what the FED is interested in. The FED
tries to balance economic growth. A proxy for that is
the unemployment rate, A lower unemployment rate is all lseqal better,
or an unemployment rate that is too low could point
to an economy that is overheating. And overheating economy tends
(07:39):
to put upward pressure on prices. We call that rising inflation,
where inflation is just the average change in prices in
the economy. The unemployment rate has been historically, though displaced
lightly by the vacancy to unemployed ratio that we sometimes
that you and Mike and others sometimes talk about. The
(08:00):
unemployment rate is the traditional measure of slack in the economy.
Speaker 5 (08:03):
It's the one that FED uses.
Speaker 2 (08:05):
Now, it doesn't mean that you won't have everyone in
their grandmother looking at this and saying, oh, look at this,
like it has to mean something, and this is why
the FED should cut rates more quickly, or look how
weak this job grow. Everyone's going to want to talk
about this, But the fact is the most recent period
that this covers is, you know, not anything that is
(08:29):
relevant today. I mean, you're talking about this is going
through March of this year. You're talking about something that
the data that's being modified by this. The closest we
get to today is six months ago, right, So it's
not something where you know, you look at this and say, og,
you know, does this mean that you know the economy
(08:49):
is different today than otherwise.
Speaker 1 (08:52):
No.
Speaker 2 (08:54):
Nvidia doesn't suddenly wake up and say, hey, there were
fewer jobs created last year, so we're going to hell
fewer chips today. Chipotle doesn't suddenly wake up and say, hey,
there were eight hundred thousand fewer jobs added between April
and twenty four in March of twenty five. We gotta
lay people off. No like that. That's not how any
(09:15):
of this works. Companies that are making sales in this
environment have been making sales in this environment regardless of
what the economic data shows. This is simply the BLS
trying to hone in on greater accuracy for its data,
and it does so with an extreme delay in this case,
to try to understand the data that they're getting from
(09:39):
businesses at a better level, just because it takes a
while to actually extrapolate what's going on there.
Speaker 4 (09:45):
Yeah, I mean, at best, it underscores the uncertainty in
the initial estimates. Any statistic and we use that number
advisedly as statistic means you're estimating some value you don't
know the true figure for, and statistics are as a result,
not only accurate to within a degree of confidence, and
(10:10):
big revisions underscore the uncertainty associated with the month to
month estimates, rather than use them as political fodder.
Speaker 5 (10:18):
Which happens inevitably.
Speaker 4 (10:20):
I get that they should be used to underscore the
uncertainty in the month to month estimates. And there's uncertainty
with respect to inflation and other variables that the federal
government tries to get a handle on too. But this
is especially true of the payrolls data.
Speaker 2 (10:33):
Let's take a quick break when we return. We just
talked a little bit about, you know, some of the
you know again weakness on the job side that that's
going to be talked about. But when we come back,
we got a piece from the Financial Times. It's titled
why the Fed should not cut rates. Now we'll discuss
that when we return.
Speaker 1 (10:51):
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Speaker 6 (11:18):
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Speaker 2 (11:58):
Peace in the Financial Times is titled why the Fed
should not cut rates now? And the case for cutting
rates is pretty straightforward. I think the labor market is
pretty stagnant at the moment, and the unemployment rate now
in the last couple months has ticked up from four
point one to four point three percent. And so if
(12:21):
you believe that when unemployment moves, it tends to move nonlinearly,
that is, it tends to accelerate upward, not move at
a constant pace, then the best thing to do is
to typically start to react sharply or strongly simply because
it takes a while for monetary policy to potentially have
(12:42):
any impact on the overall economy. What does this piece
lay out as the case for not cutting interest rates today?
Speaker 4 (12:52):
Well, Sharma, who I like in this case, makes an
argument that financial conditions, which we talk about a lot,
and there are some nice measures that aggregate the state
of capital markets the state of lending markets. They ask
loan officers, are you being more or less lenient with
(13:12):
potential borrowers and all other types of variables.
Speaker 3 (13:16):
If you bundle all.
Speaker 4 (13:18):
These together and look at them as overall financial conditions,
which the Chicago Fed does.
Speaker 5 (13:23):
You can google it.
Speaker 4 (13:23):
They have a national Financial Conditions Index and you'll see
if you do that, financial conditions are as loose as
they've been at any time this cycle since twenty twenty one.
So Sharma's main argument, as far as I can tell,
hinges on loose financial conditions and shorthand for that is
simply stocks are at an all time high, interest rates
(13:44):
are still reasonably low, nobody's having trouble getting access to capital.
Argue the way the Fed works on the well, go ahead,
let me stop there, and that says argument, I don't
want to talk.
Speaker 5 (13:56):
I don't want to go on for too much.
Speaker 3 (13:57):
It's not an attractive quality.
Speaker 4 (13:59):
So that's his argument in a nutshell, it's it's a
flawed argument though he's not looking at other.
Speaker 2 (14:05):
Talk to me about why it's flawed.
Speaker 3 (14:06):
Yeah, well, I find nobody.
Speaker 4 (14:07):
FED doesn't look for The FED does look at financial conditions,
but none of their models incorporate a variable for financial conditions.
Speaker 3 (14:14):
They look at rising.
Speaker 4 (14:17):
Grow I was gonna say rising unemployment, but the rise
of unemployment over the past several months has been modest,
And you could make an argument that it's structural. We're
shrinking the labor supply, we're making it harder because of
immigration policy, and you could say this is a good thing.
By the way, I'm not making a political argument. I'm
just making economic sort of factual.
Speaker 2 (14:34):
If I get fewer people in the workforce, it's going
to be tighter.
Speaker 4 (14:37):
We're making it harder to match workers with jobs. Sure,
friction is growing. That would increase the so called natural
rate of unemployment, which is the rate above which inflation
comes down below. It's theoretical, but you know it should exist,
and the.
Speaker 2 (14:52):
Reason why is simple. Like let's say that, as an example,
you are running a you're a subcontractor that does drywall,
just as an exact, and you need five workers a day,
and you'd show up to home depot and you'd say, okay,
you know I need five of you to come with me.
I'm paying you, guess twenty bucks an hour for the day.
Come on, let's go. If there previously were ten people
(15:13):
there and you know five would take it. Now there
are seven people there and four taken, and say well, okay,
last one, look, I'll give you twenty five bucks if
you come with me for the day. That's effectively what
we're talking example.
Speaker 4 (15:25):
That's a great example of why the natural rates, so
to speak, might be rising. Maybe the right natural rate
now is. And this is the way monetary folks that
you know, economists think about this, not necessarily the way
financial journalists do. So the way I'm framing it might
sound weird, but I'm.
Speaker 3 (15:42):
Doing it this way for a reason.
Speaker 4 (15:43):
So suppose the natural rate where what four point three
is of last week, yes, in the rate of unemployment.
Suppose it's ticked up to the estimate prior to all
this new immigration policy was like four point one four
point two.
Speaker 3 (15:55):
Suppose it's s ticked up to five.
Speaker 4 (15:56):
So anything below five will put up with pressure on
prices without helping the the real economy in a way
that we can all relate to and benefit from. So
this is the pickle that the FED is in. So
the argument Sharma makes here is I think the right one,
which is, beware we the FED might be misreading signs
of labor market weakness. They might actually be pointing to
(16:18):
structural problems which the FED can't do anything about. He
rather emphasizes financial conditions, which I get. But that's not
the way the FED thinks about the world. It's certainly not.
It's certainly not what's what's what they're attentive too.
Speaker 2 (16:31):
Right now, as I've said before, any efforts by j.
Powell to increase the labor force are strictly on his
personal time. It is not something that he can do
like it. It's not something that is part of his
efficient hobb duties.
Speaker 4 (16:47):
So right, and can we could you explain should we
explain why? Like what the FED can do and what
it can't do?
Speaker 2 (16:51):
Or you want to here, here's the example that I
love to give it. It's short and simple. Let's say
that you have an economy that has one hundred people
in it, and ninety six of them are employed, and
so you've got a four percent unemployment rate. If all
of a sudden, you have one person come into the
country and they gain a job, and you still have
(17:15):
a four percent unemployment rate, do you look at that
and say that that is meaningfully worse or better than
if one of the people with a job leaves and
now you've got ninety five people employed out of ninety nine,
which one of those. What does the FED do in
those different situations. The answer is they don't do anything
(17:35):
differently because the FED is not controlling the size of
the workforce. That's not something that they can control. And
so if the population is growing versus shrinking for that
working age population, that's not what the FED pays attention
to because they can't impact that. So that this is
(17:55):
why the FED looks at the unemployment rate is because ultimately,
if that person comes into the country and can't get
a job in the unemployment rate goes from four to five,
then they say, Okay, now there's too much slack here. Yes,
we need to cut rates because the unemployment rate went up.
On the other hand, if a person leaves the country
(18:16):
and someone else who's you know in the country gets
a job and now you've got ninety six out of
ninety nine people employed. The FED may say, hey, you
know what that might result in, you know, too much demand,
and so that could result in, you know, too much
upward pressure on prices. We've got a hike interest rates there.
Speaker 3 (18:31):
Yeah.
Speaker 4 (18:31):
The Fed can only influence demand.
Speaker 2 (18:33):
Correct, They can't influence labor supply. You know, cutting interest
rates or raising interest rates does not get more or
less fewer workers into the workforce. It doesn't. The FED
can't print workers.
Speaker 5 (18:49):
Yeah.
Speaker 4 (18:50):
Yeah, So if there's not a big demand deficiency right now,
and the real time GDP, the so called NowCast don't
suggest that there is, h is the FED doing something
that's likely to be ineffectual or worse, exacerbate an elevated
underlying inflation problem.
Speaker 2 (19:09):
So this is why, ultimately I think that you could
still have a there's a really convincing case for the
Fed should cut right now, which is the labor market
appears to be weakening, and when it usually does, it
tends to not move linearly. Counter to that is that
core inflation still running three to three and a quarter percent,
and that's a little bit hot. Let's take a quick break.
(19:31):
When we returns Wall Street Watch, Like us.
Speaker 1 (19:41):
On Facebook and follow us on Twitter at TFE show.
Breaking business news is always first right here on the
Financial Exchange Radio Network. Time now for Wall Street. Watch
a complete look at what's moving markets so far today
right here on the Financial Exchange Radio Network.
Speaker 6 (20:04):
All markets are a mixed territory to begin the week
as investors a way more inflation than jobs data duout
this week ahead of the FEDS meeting next week. The
size of the likely ray cut, however, is the big
question that remains on Wall Street right now. The Dow
is down by only nineteen points, so pretty much flat.
(20:25):
SMP five hundred is up a quarter of a percent
or seventeen points higher, and NASDAC up by seven tenths
of one percent, or one hundred and sixty five points higher.
Russell two thousand is off four tenths of one percent.
Ten year treasure yield down three basis points at four
point zero five three percent, and crude oil is up
(20:46):
over half a percent today, trading at sixty two dollars
and twenty one cents a barrel. Robinhood and app Lovin
are set to join the SMP five hundred on September
twenty second. That news came out on Friday of last week.
Robinherd is surging nearly fifteen percent, while app Love and
shares is also seeing a nice game today of about
(21:09):
eleven percent on that news. Meanwhile, the Wall Street Journal
reported that PNC Financial Services agreed to buy privately held
First Bank in a four point one billion dollar deal.
PNC shares or pulling back by one percent. Elsewhere, Summit
Therapeutic stock is sinking eighteen percent after the biopharmaceutical company's
(21:31):
results from a Phase three trial forwards lung cancer drug
showed fewer improvements in patients. Tesla stock seeing another modest
game today, falling news from late last week that the
ev maker's board proposed a near one trillion dollar pay
package for CEO Elon Musk. Outside of Tesla, Musk's SpaceX
(21:52):
agreed to pay seventeen billion dollars for the rights to
some of EchoStar's wireless spectrum. EchoStar shares are seventeen percent,
while AT and T Verizon and T Mobile are down
over two percent on that news, and Chewy received an
upgrade from Missouo, where the bank anticipates strong results in
(22:13):
Ray's guidance. When the pet supplies e commerce retailer reports
their quarterly results on Wednesday, Chewy shares are down just
over half a percent.
Speaker 5 (22:21):
Today.
Speaker 6 (22:22):
I'm Tucker Silva and that is Wallstree watch.
Speaker 3 (22:26):
Mark.
Speaker 2 (22:26):
I want to talk a little bit about this piece
in Bloomberg Opinion. It's titled Besson's FED critique misses the
big picture. And Beson's not alone in saying, hey, look,
the FED has, you know, created some problems with its policy.
But what specifically does Besson talk about when it comes to,
(22:47):
you know, kind of how he is calling out the FED?
And do you believe that he is accurate or inaccurate
when talking about what he sees from the FED.
Speaker 4 (22:58):
I sympathize with a lot of the critique coming from
I'll just call it the right, those who are on
the right politically, because I think I'm among them.
Speaker 3 (23:08):
The FED has been.
Speaker 4 (23:10):
The FEDS changed its policy framework over the last few years.
The twenty twenty change was a big one. It shifted
the emphasis from unemployment and inflation. It actually reversed the
order of those two prior to that. The re order
was in the reverse of what I just said prior
to that, excuse me, it shifted the emphasis in some
way subtle, in some ways meaningful in terms of the
(23:32):
mechanics of the way it conducts monetary policy to unemployment
over inflation. Besen didn't spend a lot of time on that,
but I will because I think that's the biggest chink
in the Fed's arm or over the past few years.
Too much emphasis on employment something sort of wokish like
and I hate that word, but you know it in
politically correct like inclusive employment, whatever the heck that means.
(23:54):
Giving inflation secondary status turned out to be a very
consequent error. Their timing could have been better to not
their fault, go ahead, Sorry.
Speaker 2 (24:04):
Do you think that this was largely due to the
fact that if you look at the twenty tens, oh sure, yeah, yeah,
despite all of the concern about hey, you know, there
was all this you know, money printing in this and that,
inflation never really perked up in the twenty tens. Yeah,
(24:25):
and so they just viewed it as kind of a
dead issue. Yes, And then because of the massive amount
of fiscal stimulus that was pushed into the economy in
twenty twenty and early twenty one, they found themselves behind
the eight ball, and that policy change just like happened
(24:46):
to come at the exact wrong time because the fiscal
framework completely changed from what it was previously and disrupted
the whole thing.
Speaker 4 (24:53):
Yeah, they were responding to inflation that was too low,
to expectations that were well anchored. The problem were very
different in twenty twenty than they are today. They were
good problems to have in some sense. The FED could
be reckless and not jeopardize state and not not jeopardize
the stability of inflation expectations. We have the opposite problem today.
So some of Besson's critiques I think are well founded
(25:15):
and should be particularly and I forget whether he said
it in his Wall Street Journal editorial or he has
set it in others of his ill could set it previously.
The FED needs to get back to emphasizing price stability
full stop.
Speaker 3 (25:28):
Now.
Speaker 4 (25:29):
Part of that is on Congress. They need to change
Humphrey Hawkins. They need to h They need to legislate
price stability, maybe even an inflation target.
Speaker 2 (25:37):
Part of it is you can't just say something like
that and then not explain what it means. Oh okay,
because I don't think any one listening still under.
Speaker 4 (25:45):
You and Mike talk about this a lot, the FED
having a so called dual mandate. It's actually a three
part mandate, but one of the parts is subsumed by
one of the others, so that the FED has a
two part mandate for all intents and purposes, price stability,
keep inflation low and stable, is how that's been interpreted.
Bernank operationalized that by saying it's going to be two percent.
(26:06):
Possibly a mistake, but that's the world we live in.
The other is, of course, maximum employment, which has been
read up until twenty twenty. Anyway, in the change in
the policy framework, is employment consistent.
Speaker 5 (26:18):
With price stability.
Speaker 4 (26:20):
So inflation, particularly after the experience of the nineteen eighties,
was always weighted more heavily. And I think I'm going
to charitably interpret besence critique because he's echoing critiques made
by others, guys like Rand Paul and before him his
dad Ron Paul, which I'm sympathetic with, So I'm gonna
paint them in a favorable light. FED needs to focus
on price stability, period forget about all these ancillary goals
(26:41):
FED is you talked about in the last segment. FED
can't do anything about this labor supply or the weather
or inequality. Probably some would argue with that, but I
would argue that it's dangerous once you start getting going
down that path.
Speaker 3 (26:56):
So I'm gonna interpret.
Speaker 4 (26:57):
Besson's critique as charitably as possible and say, this guy's
got a point. Congress should let May control Congress, so
they should take advantage of that Act on it. The
President should sign something that makes the FEDS do what.
Speaker 3 (27:08):
Okay, so do what?
Speaker 4 (27:09):
Specifically, revise the nineteen seventy seven to seventy eight law
that ensrying the dual mandate in legislation, change the Fed's
focus to make it solely on price stability and controlling
inflation expectations. I, for what it is worth, agree with
those who say strip out the maximum employment mandate. It's
what gets the FED into trouble. It's what got them
(27:30):
into trouble in twenty twenty twenty twenty one, they decided
to let the economy as you said in the last segment,
although you weren't referring to this period, but they appear
to be doing it again. It causes them to get
the economy to run hot because they think they can
do something about a supply problem when their tools just
don't enable them to. So I think Congress could and
just following the footsteps of Ron and Ran Paul. Here again,
this is me the ideologue, not me the analyst talking.
(27:52):
But by constraining the Fed's mandate, you prevent it from
getting into trouble and better help. I think keep inflation
expectations under control is how I interpret besense critique.
Speaker 2 (28:02):
When you look at some of the items that are
in here. The one place that I always kind of
run into problems with the criticism of the FED is
it always seems to be like, damned if you do,
damned if you don't. In that for the entire twenty
ten decade, all I heard over and over and over
(28:24):
was the FED is keeping interest rates artificially low, and
it's propping up home prices, and it's preventing Americans from
buying homes and Americans can't get anything on their savings. Correct.
Speaker 5 (28:38):
Yeah, that was a pretty common critique.
Speaker 2 (28:40):
And now all I hear is the Fed's keeping interest
rates artificially high, and because of those high interest rates,
Americans can't buy homes. Well, it can't be that the
FED is keeping rates both too low and too high,
like what's the right rate of interest? And this is
the problem that I get to with a lot of
these FED critiques is it's based on the fact that
(29:05):
maybe this maybe gets it what you're saying. Maybe the
problem isn't the FED when it comes to these things.
Maybe it's broader policy, either on a national level or
at a local level, that is preventing homeownership from being affordable. Yes, yes, yes,
And we need to move past just trying to blame
(29:26):
the FED. And this is kind of what I get
at a lot is people want to blame the FED
for what their own city council has done to home prices.
Speaker 4 (29:34):
Locally, eliminating the dual one prong of the dual mandate
to mix metaphors a little bit would achieve that it's
probably not going to happen because it's convenient for politicians
to shift blame or to assign blame. Sometimes you can't
do anything about a recession. It's the way the economy
naturally realigns in response to changes in technology and their
(29:56):
effect on productivity, and you get this frictional structural sometimes
unemployment when industry when when when industries EBB and flow
in terms of dominance. The FED can't do can do
very little about that. The federal government could cushion a blow,
but it's a way for politicians to shift blame, so
to me doing what the ECB does. By the way,
this is not some radical policy. There are plenty of
(30:17):
central banks around the world that don't have a so
called dual mandate. Allowing them to focus just on price
stability would make it easier to set and anchor inflation
expectations and maybe shift the responsibility for some of these
other things that, as we've talked about, the FED can't do,
back to the bodies that can accomplish them, like Congress.
Speaker 2 (30:39):
Let me ask you the counterpoint to that, and then
we're going to take a quick break and answer it
on the back end. Is there a convincing case that
responsibility for price stability should instead lie with Congress. Let's
take a quick break and discuss that when we return.
Speaker 1 (30:56):
Text does six one seven, three, six two one three
eight five with your comments and questions about today's show.
This is the Financial Exchange Radio Network. Find daily interviews
and full shows of the Financial Exchange on our YouTube page.
Subscribe to our page and get caught up on anything
and everything you might have missed. This is the Financial
(31:16):
Exchange Radio Network.
Speaker 2 (31:27):
In the last segment, as we're winding things down there,
Mark said, look, one of the things that Congress should
look to do is to take back control of one
side of the Fed's dual mandate and remove the unemployment
piece from the puzzle. So the FED is just targeting
price stability. And I responded with, you know, kind of
(31:48):
a smart ass response, but you know, also a smart
response because you can't smell, you can't spell smart ass
without smart Hey, what if the FED, I'm sorry, what
if Congress decided to take control over the price stability
mandate instead? And look, the obvious answer is they probably
(32:08):
can't do either of these because no one ever wants
to do any bad things when they're in Congress. It's
just not a responsible institution at this point. Yeah, if
we're being honest. But I'll make the point that, hey,
if Congress effectively said, you know what, we generally can
(32:33):
more directly influence the amount of aggregate demand in the
system that impacts you know, price stability through policies that
we pass, maybe we should be responsible and try to
you know, handle that side of the equation instead. And
the case I'll make is the inflation that we saw
(32:56):
in twenty one and twenty two does not happen without
Congress passing a bunch of fiscal Is that a fair statement.
Speaker 4 (33:05):
Some would disagree with that, but I think most think
that monetary and fiscal factors and supply shocks contributed.
Speaker 2 (33:11):
The supply shocks obviously would be there. The monetary side
wouldn't have necessarily been the problem if it weren't for
the fiscal side being so out of whack.
Speaker 4 (33:22):
Well, they accommodated the supply shocks.
Speaker 5 (33:23):
The FED didn't. By that, I mean they didn't push
against them. Look, I don't want to split hairs.
Speaker 3 (33:28):
Yeah, go ahead, I'm with you so far.
Speaker 2 (33:30):
So part of me wonders, Look, in an ideal world,
could you have Congress, you know, adjusting its policy there.
But the problem is, as I said, I don't think
Congress is a responsible institution at this point to be
able to react as needed when those things come up.
And the evidence of that is there's a reason why
the deficit is moving only in one direction in the
(33:50):
last twenty five years, and that's up.
Speaker 4 (33:52):
And there's a reason why we are where we are today.
If you read an economics textbook that was written in
the seventies or eighties, it would have touted fiscal policy.
Speaker 5 (33:57):
People all, remember this.
Speaker 4 (33:58):
You stimulate agreg get the mead, Congress passes a tax cut.
How do we get to the point where monetary policy
is the key output stabilization tool. Well, people realize that
there are so called inside and outside lags associated with
fiscal policy. Inside lag being amount of time it gets
the bill to pass, requires is required to build a pass.
Pardon me for he's talking so fast, but this is
I'm gonna get it all in here. Outside lag is
(34:18):
the amount of time it takes for whatever the fiscal
policy makers did to affect the real economy that takes
too long. Monetary policy can act on a dime and
it can stimulate the economy quickly. They could do a
helicopter drop, as Milton Friedman joked, of money into the economy.
So that's how we got to monetary policy being the
key counter cyclical, a recession mitigating tool.
Speaker 2 (34:41):
Do you think they would ever use actual helicopters.
Speaker 4 (34:46):
If the stunt, you know, worked from a pr point
of view, somebody might as it.
Speaker 2 (34:50):
Feels like we might get there eventually. Yeah, right, Like
you want to make the FED more popular? Put j
up there in a purple tide dropping dollars down.
Speaker 3 (35:00):
Yeah, there was saying this is good.
Speaker 4 (35:01):
I'm just saying like when they started with QE and
eight oh nine, an investment manager, well known one, was
giving away ties at Christmas of Bernanky in a helicopter.
It was a little hard to get the thing on
a tome. You get one, I've got like three of them.
You do Bernanke helicopter draw not ties. Yeah, I tried to.
Speaker 5 (35:18):
Sell the money bay. There wasn't much of an audience.
Speaker 2 (35:20):
You should drop those from a helicopter and see what happens.
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Speaker 2 (36:29):
Trash complaints in Boston last week quadrupled from their norm.
On an average day in twenty twenty five, Bostonians submitted
fifty six complaints about improper storage of trash to the
city's Public Works Department, But from September one to September third,
(36:51):
that jumped to more than two hundred per day. And
this is what happens every year. Because Boston's a big
college town. Lisa's run September through August, and so you
get a bunch of moving that happens on or around there.
And because it's a bunch of college students who don't
necessarily have cars. You get them basically just throwing their
junk out on the street, and people complain about, you know,
(37:12):
the volume of junk that is out there. I can
sympathize with both sides of the equation here. On one hand,
if you live in the city of Boston, you don't
want to just be walking by giant piles of furniture
and stuff. Like they talked about someone throw a cat
tower out and they were like a couple of cats
that had moved into the cat tower out on the
(37:33):
street just because they were like, Oh, this sounds you know, cozy.
So I can understand like the problem there. On the
other hand, I don't really know what you want people
to do, Like this is kind of how cities tend
to work. Your trash goes out on the sidewalk and
waits for the trash people to come through, and so
(37:56):
I don't know, do you like find a way to increase,
you know, pick up volume during that time. I don't
know where you just keep these like backup trash, you know,
garbage men on on on duty the rest of the year.
But I don't know what the answer is to this.
Wood chippers just give everybody woodchippers. Problem solved in the units.
Yes we got mulch. What a great thing. Let's take
(38:20):
a quick break when we come back. Our two in
just a bit
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